Beware of the sale and rent back rip-off

Published by Rebecca Rutt on 22 February 2011. Last updated on 23 May 2013

Sale-and-rent-back firms are giving "shoddy advice", according to Which? and are selling properties to people without checking if they can afford to rent them back.

A mystery shopper exercise by the consumer organisation revealed widespread malpractice among these firms, including failure to carry out the correct checks and give proper advice.

The sale-and-rent-back schemes are aimed at homeowners struggling with their repayments. The company that runs the scheme buys the property and then rents it back to the struggling homeowner, so the person doesn't have to move house.

However, this practice has been criticised in the past as many companies pry on desperate people and often buy the property at very low costs and then charge extortionate rates of rent back.

Regulations not being met

Sell-and-rent-back companies are regulated by the Financial Services Authority (FSA), however Which? found that several firms do not comply with regulations.

Only two out of 17 advisers, across nine firms, contacted by Which? offered acceptable advice during the investigation.

Seven of those neglected to discuss whether a sell-and-rent-back scheme would be appropriate for the customer and six of these went on to give quotes.

The consumer organisation has reported two sale-and-rent firms to the FSA for acting without regulation but the firms have not been named.

Peter Vicary-Smith, chief executive for Which?, says this behaviour is unacceptable and people shouldn't have to put up with receiving this kind of shoddy advice about a major financial decision.

"Not only are regulated firms not doing enough to ensure vulnerable consumers make the right choices, some are offering sale-and-rent-back that aren't authorised to do so. The FSA must tighten the screw on these firms to make sure the rules are followed and consumers are protected," he adds.

What to check before signing on the dotted line

Under the FSA rules implemented last summer, when a customer contacts a sale-and-rent-back company, it should explain what kind of service it is providing, whether it is an intermediary and if so how many companies it deals with and if these are authorised. It should also discuss how much any fees, commissions and charges there are likely to be. All of these details should be explained verbally and in writing.

If you suspect a sale-and-rent-back firm of dodgy practice, it's best to get in touch with the FSA immediately. You can call its consumer hotline on 0845 606 1234 or email them at consumer.queries@fsa.gov.uk. More information can also be found on its website fsa.gov.uk.